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Uranium Weekly Update from our friends at Cormark

Sector News – WNA Highlights, Denison Takes on Larger Stake of Wheeler River

The World Nuclear Association (WNA) symposium took place in London last week. Some of the highlights from Cormark’s time on the ground include:

  • We believe Kazatomprom is fully on board with the Cameco-led production curtailments to generate a longer-term rebound in the uranium markets, particularly as it heads towards an IPO by year-end.
  • Additionally, our meeting with Uranium One suggested that Kazatomprom’s production costs are closer to $25-$30/lb once reclamation costs are accounted for, meaning the company is by no means immune to the sustained weak uranium price over the last two years.
  • With Kazatomprom committed to tapering its supply to meet demand, more than 50% of global uranium supply (CCO+KAZ) is now actively working to drive spot prices higher.
  • Our time with Denison gave us further confidence that the company’s upcoming PFS (by end-Q3) for the flagship Wheeler River project will dramatically improve the project production costs and improve economics. By revising the study’s mining methods, we think the AISC at Wheeler could drop to $10-15/lb and, combined with the project’s high-grade (59.9 MMlbs at 43.2%) core, we see Denison as the U name to own as the equities rally to catch-up to the continued spot price strength.

Recall that last week, Denison agreed to purchase Cameco’s 24% stake in the Wheeler River project for 24.6 MM shares (transaction value of C$16 MM), and opportunistic move to take a larger stake in the project ahead of the PFS while Cameco focuses on keeping its own house in order. The acquisition was accretive to NAV and increased out NAVPS by 15% based on the Wheeler River PEA outputs.

MIT published a multi-disciplinary study that assesses nuclear power’s place in global initiatives to “decarbonize” and reduce fossil fuel dependencies. The pro-nuclear study (linkhighlights that nuclear power is essential to meeting growing global electricity demands while simultaneously addressing climate change. The study also proposes scenarios for reducing the exorbitant capex associated with opening new reactors, and suggests that government initiatives that reward nuclear power’s emission-free power supply will be essential for maintaining the industry’s competitiveness.

Duke Energy Corp, one of the largest US utilities and operator of 12 reactors, is no longer considering adding new reactors to its fleet in the long-term plans it filed to state regulators last week. While the company has no plans to close its current plants, and noted that its reactors are all candidates for license renewal, the longer-term loss of potential new plants is another negative for the US uranium industry that has seen a number of closures and construction projects abandoned over the last year.

U Equities Pull Back; UPC Trading at 1.01x NAV;

We continue to highlight UPC as one way to play the rallying spot market, as the company has historically tracked in-line with the spot price vs. producing peers who trade off term pricing. As a result UPC should benefit if spot and term converge.

UPC’s has the largest uranium inventory of any peer (now 17.08 MMlbs U3O8) and offers investors direct exposure to the commodity without any operational or mining risks, and still looks like a candidate for a takeout by a utility or producer looking to secure a large U supply in one shot.

UPC’s main rival Yellow Cake (which holds ~8 MMlb) also pulled back last week, and is currently trading in line with UPC (1.00x NAV).

Spot Market ($26.70/lb) – 6 transactions (2.4 MMlbs), new demand reported

Cameco selected a supplier for the 500,000 lbs it requested towards the end of August. The material will be delivered between September 2018-March 2019, and provides only a small portion of 11-15 MMlbs we expect the company to purchase on the spot market by end-2019.

An unexpected RFP for 100,000 lbs U3O8 was issued this week by a US utility. The utility has already selected a supplier.

Term Market ($31.00/lb) – no transactions, no new demand reported

One non-US utility seeking 2.6 MMlbs U3O8 in 3 batches is evaluating offers, while another non-US utility is evaluating offers for 10.8 MMlbs between 2021-2029

Source: Cormark Securities Inc.